Pimco Readies Three More Credit-Market ETFs — Though It’s No Attack of the Clones

By Brendan Conway

Bill Gross’ PIMCO has the green light to dig deeper into exchange-traded funds, this time with a trio of new credit-market ETFs OK’ed by regulators.

But as the case of PIMCO Total Return ETF (BOND) shows, the careful investor shouldn’t assume the strategies will perform just like the similarly named Pimco mutual fund.

The trio will be called PIMCO Diversified Income Exchange-Traded Fund, PIMCO Real Return Exchange-Traded Fund and PIMCO Low Duration Exchange-Traded Fund, according to a company spokesman.Note that three of the company’s popular mutual funds include Pimco Diversified Income Fund (PDVAX), Pimco Real Return Fund (PRTNX), and Pimco Low-Duration Fund (PTLAX).

But it’s not an attack of the clones. At least not for investors who understand what’s under the hood.

“The investments made by the ETFs and the results achieved by the ETFs at any given time are not expected to be the same as those made by other funds for which PIMCO acts as investment adviser, including funds with names, investment objectives and policies similar to the newly filed ETFs,” the spokesman says. The funds are “not intended to be clones of those funds in an ETF vehicle,” he stresses.

Distinction without a difference? No, there’s a difference. Pimco Total Return ETF’s (BOND) is up 10.5% in the last year, while its mutual-fund forebear Pimco Total Return fund (PTTRX) is up 7.6%. No, it’s not a radical difference. But the returns speak for themselves.

So do the differences once you look at the underlying portfolios. The number of securities inside PTTRX is much, much larger. It also uses derivatives, whereas BOND does not. There’s no guarantee that the performance difference can’t widen, reverse, or otherwise shift.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.